Brief overview of what book said: John Maynard Keynes: rejected classical views of economic men and the self-regulating economy. He aruged that few people consistently act in their own financial interest, for no one is free of ideas, values, and tastes that shape actions. He claimed that massive unemployment was proof that capitalism must not be left to its own devices. He dismissed Marxism and offered a theory that called on governments to smooth out the economic cucle: when the economy lagged, the government should lower interest rates to encourage production and should finance public works and social welfare to stimulate consumption. If the economy expands, the opposite policies should check inflation and excessive speculation.
What Mr. Baldwin says about Keynesian Economics (CLASS NOTES):
When economists talk about money, they refer to "M1". "M1"= total currency in the world + total checking accounts+ total traveleres checks. M1 is anything you could spend RIGHT now.
Fact for back then: People did not (and some still DO NOT) trust banks and many of them kept their money at home (in the backyard or under the matresses)
Money at home means the money is NO longer in circulation
JB Seyes said that if you put everything with value in a pile and total up all of the stuff in the world and all of the income in the world, they should always be EQUAL.
During the Great Depression, this was unbalanced! There was not enough money to buy all of the stuff because of a decrease in income.
Ways to get money back into circulation: THE U.S. GOVERNMENT IS (WAS) THE LARGEST CONSUMER IN THE WORLD. So, KEYNES said, it doesn't make the least bit of difference what the government spends money on, the government just needs to spend money so that the money can be in circulation. Roosevelt, and his 'New Deal' followed this. His theory was that if the government began spending money, people would dig up all of the money in their backyards and spend it!
KEYNES also knew two facts for sure: industries BOOM and industries BUST, however the economy generally trends upwards like this:
So, therefore, to have a SAFETY NET that NOBODY can fall beneath, there must be social security and healthcare to help those who do NOT have a lot of money (the poor) and taxes to cut down on those who have TOO MUCH money (the rich). When a large group of people have no money, its bad for everyone and when a large group of people have too much money its ALSO bad for everyone. Therefore, the government needs to cut the top and the bottom. CUT THE TOP WITH TAXES AND THE BOTTOM WITH SOCIAL SECURITY, like this:
What Mr. Baldwin says about Keynesian Economics (CLASS NOTES):